Spectrum Barriers are Going to Fall

In a business where barriers to entry matter, spectrum policy is evolving in a direction that will dramatically lower such barriers. So, as competitive as the mobile industry tends to be, it is likely to get more competitive.

Spectrum costs for virtually all providers will fall as new access methods, and huge amounts of new spectrum, are brought to market.

On one hand, the lower spectrum costs will help traditional operators in both the capital investment and operating cost areas.

On the other hand, those new ways of using spectrum will enable new entrants, as barriers to entry will fall.

Though Wi-Fi offload will continue to be a key method for using unlicensed spectrum and networks as a support for mobile data access, 31 network operator executives surveyed by Tolaga Research finds executives executives also believe they will be using a number of new techniques.

The TIA study found executives believe their firms will be using techniques that essentially bond unlicensed spectrum with mobile licensed spectrum, including License Assisted Access, LTE-WLAN aggregation (LWA), LTE Wi-Fi integration or MulteFire.

Other techniques, including licensed shared access (LSA, the idea behind the Citizens Broadband Radio Service) also might be used, but respondents were not asked about every other option that might be used.

Though the role of Wi-Fi offload continues, the newer techniques go further in making access across owned and third-party assets more seamless, as well as enabling more-effective use of unlicensed spectrum to support services traditionally offered only on networks using licensed spectrum.

About 55 percent of respondents plan to deploy Licensed Assisted Access (LAA) and prefer the notion of operating LTE in unlicensed spectrum. Wi-Fi offload solutions, such as LTE + Wi-Fi Link Aggregation (LWA) and LTE Wi-Fi Integration, (a forerunner to the LWA), were both favored by 41 percent of respondents, the TIA report says.

A possible wrinkle is that the survey seems to be weighted towards “mobile” industry executives, not executives from other industries that might eventually wind up competing with the traditional mobile providers. Some of those potential competitors--especially those with large hotspot assets--might well favor use of MulteFire at levels most traditional mobile operators would not do.

source: TIA

5G Fixed Wireless Works for Internet Access Business Case, Nokia Argues

Using 5G (and millimeter wave spectrum) for consumer internet access, a service provider might well have a business case for using fixed wireless for internet access, Nokia has found.

In a study of one European service provider, the business model for using 5G for internet access in a fixed mode works at 30 customers served per cell site, though obviously the model is sensitive to capital investment and average revenue per account.

But the model appears most sensitive to take rate, as you would expect. The business model requires a 30-percent take rate. That is a lower threshold than generally required for a facilities-based fiber-to-home network.

Average revenue per account probably needs to be at least 40€ (US$43) per month, a target most consumer service providers should be able to hit with one service.

In its analysis for one European service provider, a Nokia 5G solution using millimeter wave spectrum allows each base station to serve tens of households.

The 5G short-range fixed wireless access is expected to sustain one Gbps per household. To achieve such a high speed and longer ranges for 5G fixed wireless service in suburban and rural markets requires MIMO antenna and beam-forming, plus use of lower-frequency spectrum.

In other work, Nokia has found that 5G is much more cost effective than earlier generations of mobile networks to support entertainment video, an advantage directly related to consumer internet access demand.

source: Nokia

The business model also will be influenced by ARPU, which for some suppliers might be $130 a month, meaning the breakeven is lower than modeled by Nokia. Also, other benefits, especially the ability to share cost with the mobile 5G infrastructure, might have some impact on the business model, further lowering the payback threshold.

That appears to be Verizon’s thinking, as it envisions using one optical transport infrastructure to support both mobile and fixed access operations.

Fiber Reaches Less Than Half of U.S. Commercial Locations

U.S. business locations with 20 or more employees reached by an optical fiber connection  reached 49.6 percent in 2016, according to Vertical Systems Group. In 2004, optical connections reached only about 10 percent of such locations.

One reason so many business locations, even those with at least 20 workers, are not connected directly by optical fiber is that so many are small locations that do not provide a business case. Roughly half of all commercial buildings represent about 10 percent of total floor space, showing how small most sites are.

The vast majority of commercial buildings are relatively small. About half of buildings are 5,000 square feet in size or smaller, and nearly three-fourths are 10,000 square feet or smaller. The median building size is 5,000 square feet (i.e., half the buildings are larger than this and half are smaller), while the average size is 15,700 square feet.

Buildings over 100,000 square feet (from large high schools to hospitals to sprawling distribution centers to skyscrapers, for example) make up only about two percent of the building count but about 35 percent of the total floorspace.

Many of those smaller locations are markets for consumer-grade connections or non-fiber moderate-speed access connections, and may never be amenable to optical fiber access.

 

source: U.S. Energy Information Administration

Offices represent the single biggest category of locations, followed by warehouse and storage locations; service businesses and retail.

source: U.S. Energy Information Administration

Where Will Artificial Intelligence Appear First in Telecom?

Billing systems, self-optimizing networks, customer service and network functions virtualization are some of the areas in which artificial intelligence is likely to appear first in the core telecom business. AI also already is used by content and media firms to personalize content feeds, and some access providers who also own such assets will be using AI that way.

Over time, almost any function or process with big data characteristics will be augmented by AI, as that is a way to wring insights from masses of unstructured data.

Global revenues for cognitive and artificial intelligence (AI) systems will reach $12.5 billion in 2017, an increase of 59 percent over 2016, according to researchers at IDC.

Global spending by enterprises on cognitive and AI solutions will grow at a 54 percent compound annual growth rate (CAGR) through 2020, when revenues will be more than $46 billion.

The largest area of spending in 2017 ($4.5 billion) will be cognitive applications, which includes cognitively-enabled process and industry applications that automatically learn, discover, and make recommendations or predictions.

Spending on cognitive-related IT and business services will be more than $3.5 billion while dedicated server and storage purchase will total $1.9 billion. Each of these areas will experience strong growth throughout the forecast, led by cognitive applications with a five-year CAGR of 69.6 percent, IDC predicts.

On a geographic basis, the United States is the largest market for cognitive/AI spending with 2017 revenues totaling nearly $9.7 billion. Europe, the Middle East and Africa (EMEA) is currently the second largest region, but strong spending growth from Asia/Pacific (including a 107% CAGR in Japan) will move it ahead of EMEA by 2020.

The Cure for High Prices is High Prices

Some observers worry that the growing cable operator market share in consumer internet access means higher prices are coming, as telcos increasingly are relegated to almost-marginal roles.

In a new research note, New Street Research analyst Jonathan Chaplin says cable providers controlled 65 percent of the overall consumer internet access market at the end of 2016, possibly growing to as much as 72 percent by 2020.

Of course, the concern about higher prices assumes new challengers, or new methods of competing, cannot arise. That is likely an unwise assumption. In virtually all markets that are open to competition, high prices and high market share are invitations for competitors to attack.

“The cure for high prices is high prices,” a commodities industry adage suggests. In other words, high prices encourage more production, which leads to lower prices.

To be sure, many observers of the communications might deny that can happen with the commodity known as internet access, but history suggests the internet access commodity will respond to competitive forces in the future, as it has in the past, bringing additional supply to a market that concentrated, and also featuring “higher prices.”

In principle, several conceivable lines of attack exist. New platforms and new providers both are coming. Though some might doubt the amount of share that can be taken by new challengers on new platforms, several new platforms are coming, ranging from fleets of low earth orbit satellites, possible use of balloon fleets, unmanned aerial vehicles, fixed wireless and 5G mobile substitution.

Some of those platforms will come to market because new providers (Facebook, Google, OneWeb) are sponsors of the new platforms. In other cases, existing providers (mobile operators) will compete with fixed network providers.

What seems clear is that the era when telco fixed internet access networks based on digital subscriber line were competitive with the cable TV platform has largely past. Fiber to the home will be a choice in some cases, but the business case has gotten harder as cable has gained more share (stranded investment risks are far higher as the addressable market shrinks).

That likely means the future competition will come from new platforms and providers (mobile substitution as well as new competitors).

That might seem unlikely with the pause in Google Fiber deployments. Longer term, a big and attractive consumer market with rising prices, where one contestant has 70 percent share, will be attacked. The only issue is “by whom?”

Verizon to Deploy 8,000 to 10,000 Small Cells in Boston

Verizon CEO Lowell McAdam says it will deploy 8,000 to 10,000 small cells in Boston, as part of its One Fiber optical infrastructure in Boston, investing  $300 million over six years. That massive deployment of new cell sites explains why the One Fiber deployment of transport fiber is so important.

Those 8,000 to 10,000 cell sites all will need gigabit per second backhaul.

Separately, he says Verizon will purchase up to 12.4 million miles of optical fiber from Corning each year beginning in 2018 through 2020. The minimum purchase commitment is $1.05 billion, Verizon said.

To put those Boston small cells into perspective, there were about 300,000 cell sites total, in the U.S. market, in 2016, and about 150,000 towers.

source: SNL Kagan

Computing Models Have Business Model Implications

The Open System Interconnect model (and the incompletely compliant internet protocol) is a reference model for the way modern computing works, and illustrates why the global telecom industry faces some common problems.

For starters, OSI was developed because modern computing requires communications across disparate systems. That heterogeneity is one key foundation of modern computing. As computing no longer is monolithic, so telecom no longer is monolithic.

As modern computing assumes (in principle) that “any authorized app” can be used by “anybody who is authorized” on “any authorized device,” so the structure of telecom now makes similar assumptions.

That is far different from yesterday’s world, where “my authorized apps” can be used by “any of my authorized users” on “any of my authorized devices.”

That dramatically changes customer lock-in and therefore supplier power. So all access providers now are “less powerful” than they used to be. Look at the market capitalization of the world’s leading apps, compared to the market capitalization and multiples of telecom and access providers and you will see how “value” translates into valuation. As early as 2011, app providers had leapt to market values far higher than the largest telcos, creating what some have called valuation envy on the part of access providers.  

source: Telco 2.0

But the OSI model (and Internet Protocol) also explains why access providers have lost value in the ecosystem. By creating logical separation of computing functions, business role separation also was enabled.

By definition, it is possible for apps to be created and accessed irrespective of the ownership of access facilities or the actual applications themselves. That is the fundamental opposite of the old model, where applications and network ownership were vertically integrated.

That takes profit margin out of the access business at the same time it enables product substitution that does not require network ownership. Apps now are effectively virtualized and abstracted from access and transport functions and ownership.

Wi-Fi provided an early example of how even access has become more virtualized, allowing users to connect over networks not owned by their “service providers.” More examples of that are coming.

And though some have argued that over the top apps do not compete with telco and access provider revenue, only control of the value chain, one might now argue that is only partly true. OTT providers essentially destroy the former access provider markets (look at voice, messaging, now video).

source: Vision Mobile

source: IDATE

FCC Wants to Streamline Pole Attachment Processes

I cannot prove it is true, but I believe one reason why young digital natives often miss the business challenges of creating access network infrastructure is that it is so physical, so resistant to Moore’s Law improvement and other advantages available to creators of virtual products.

In other words, internet access facilities are construction projects. And, over a five-year period, the cost of getting a pole ready for hanging of one new cable can represent two orders of magnitude most cost than the cost of renting space on the pole for five years.

For such reasons, impediments to construction allow incumbents to delay competition. That has been an issue in access networks as long as I can remember (only a few decades, admittedly). One clear example is disputes over pole attachment rates and rights.

That is among the reasons the U.S. Federal Communications Commission wants to make the process of gaining pole attachment rights easier.

Federal Communications Commission Chairman Ajit Pai of the has proposed a Notice of Proposed Rulemaking (NPRM), Notice of Inquiry (NOI), and Request for Comment (RFC) to remove barriers to infrastructure investment by streamlining pole attachment processes.

Reforming the FCC’s pole attachment rules will make it easier, faster, and less costly to access the poles, ducts, conduits, and rights-of-way necessary for building out next-generation networks.  

The FCC chair also hopes the rulings will provide greater regulatory flexibility and expedite the process of retiring copper facilities by streamlining the regulatory process by which carriers must obtain FCC authorization to discontinue legacy services.

source: McLean Engineering

source: FCC

source: FCC

PTC Academy, Spectrum Futures Collaborate for Training

A training program for mid-career telecom professionals will be held Sept. 20-22, 2017 in Bangkok, organized by the Pacific Telecommunications Council and taught by about a dozen industry professionals with long experience in the business.

PTC Academy is aimed at "up and coming" younger executives, and designed to give them a taste of the challenges they will face as they move up the management ranks.

In conjunction with PTC Academy, attendees at the tutorial segment of Spectrum Futures, the PTC conference on 5G and spectrum policy, can register for both events and receive credit for  “5G/mobile” training.

• 5G: key principles and business implications
• How millimeter wave will revolutionize mobile and maybe fixed access
• Spectrum sharing: what it is, how it will work and why it is important
• The new roles for unlicensed spectrum

The Academy course will cover a number of key topics, including:

• A strategic overview of the global telecom business and its key business challenges
• Business strategy in difficult markets
• How organizations deal with internal issues related to business change
• Product innovation
• How organizations deal with key competitors
• A case study exercise on how market disruption was handled
• International communications

Virtualized Networks are Coming

Virtualization is among the very-biggest trends in networking, both in the core and in the access network, with the biggest changes to come as 5G becomes a reality. Gone will be the days when a facilities-based service provider relied mostly on its own, owned networks. 

Instead, the access function will be handled in a number of ways, combining use of owned, leased and borrowed facilities; licensed and unlicensed spectrum; unlicensed spectrum augmented by licensed spectrum or sometimes mostly using unlicensed or shared spectrum. 

In Addition to Connectivity, What Other New Revenue Streams Might Connected Car Create?

It might be obvious that if internet of things apps and services become a big set of businesses, that connectivity services must underpin those services. What remains unclear is the precise nature of those connections. In many settings, Wi-Fi or some other connection protocol might be used, which will indirectly affect the market for internet access services and revenues.

In the connected car market, which assumes mobility, mobile networks are almost certain to be a connection of choice. Just how big a choice remains a matter of some debate.

One big divide is likely going to be between “outdoor and ambient” connections versus “indoor ambient or stationary” deployments, where Wi-Fi and other short-range connectivity solutions will work.

But though connectivity will undoubtedly be among the new revenue streams, business-to-business applications and services are among the more-promising new revenue streams. For example, insurance companies are among the new users of connected car information, and the issue is which entities will package up that data and make it consumable.

The survey, commissioned by the GSMA and sponsored by Interdigital, Gemalto, Cisco, Volkswagen and F5 of nearly 1,000 respondents did not believe bandwidth would be an issue, even as soon as 2020, when meaningful deployment was expected. Fully 36 percent of respondents said connected cars were already available.

About half the respondents to a survey sponsored by Interdigital suggested Wi-Fi and existing mobile networks  would be sufficient for the next five years.

Half thought higher-bandwidth alternatives such as 5G, satellite links or low power wireless access (LPWA) solutions would be needed to support some IoT apps.

In any case, respondents believed incremental revenue would be earned by average revenue per user (ARPU) from end users (48 percent), B2B revenue from vehicle manufacturers (49 percent) and B2B revenue from automotive industry players (48.9 percent).

Some nine percent said they would be available within the next year and 14 percent estimated connected cars would be available within the next two years (before 2018).

Network technology itself was not seen as a significant issue, with just 11.6 percent of respondents identifying insufficient bandwidth or throughput as an issue for connected cars.

However, 36.6 percent identified patchy network coverage as the main connectivity deficiency that has potential to hold the market back. Security, on the other hand, was viewed as a significant issue.

About 60 percent of respondents agreed that security would be an issue.

source: Interdigital

source: Interdigital

Scale Does Matter

The Windstream acquisition of Broadview Networks illustrates a few important points about the fixed networks business in the U.S. market. Scale does matter. The largest tier-one providers have strategic options not available to service providers without scale. Few U.S. telcos could become important players in the content networks business, as Comcast and AT&T have done.

One tier down, some former independent telcos mostly operating in rural markets amassed enough scale to reposition themselves as business customer specialists. The smallest operators have very few good choices at all.

Windstream, for example, has shifted its revenue in the direction of business customers, especially small and mid-sized firms, and the latest deal only reinforces that strategy. Recall that Windstream, like Frontier and CenturyLink, once were known as “rural telcos” serving not only small markets but also mostly consumer accounts.

These days, CenturyLink has been transformed, earning more than 88 percent of revenue from business customers. Frontier had been earning nearly half its revenue from business customers until its acquisition of former Verizon accounts, which has tipped the company back into being a firm driven by consumer accounts.

That is not necessarily to say consumer revenue is unimportant. Consumer revenue still drives mobile operator revenue. Video entertainment--mostly a consumer service--now anchors AT&T’s fixed network revenue.

In the fixed networks business, it might be argued that, for some, strategy is to somehow reduce consumer segment exposure, since growth is gone. If that is the case, some might argue Frontier made a strategic mistake in making a bigger push in the consumer segment.

On the other hand, AT&T has gotten bigger in consumer media services, but not by using the fixed network, at least as a transitional step. Firm strategy, in other words, suggests tier one providers have a range of options not available to smaller providers without scale.

As CenturyLink and Windstream have tended to show, a shift towards business revenues is possible, for the largest rural telcos. That likely is not conceivable for most small rural telcos or cable operators, though.

In the competitive local exchange carrier segment, once dominated by many independent firms, cable TV firms have emerged as the leaders, while independents gradually are being absorbed. That is not unusual, as niches often are cultivated by specialist firms until the larger providers conclude they need more exposure in the niches and acquire the smaller firms.

One might also conclude that Broadview had reached a point where growth in its existing markets was exhausted, with revenues flat over the last three years.

That might lead one to conclude that, in the fixed networks business, for at least the larger remaining providers, revenues will shift to the business segment, after scale is achieved and accretive acquisitions are made.

The biggest single lesson is that scale really does matter. With scale, many growth paths exist (mobile services, media content, video services, business services, international expansion). Without scale, options are limited, and more limited the smaller the size of any firm’s operations.

Cloud Services Still are "Winner Take All"

source: Canalys

New data from Synergy Research Group shows that hyperscale operators are aggressively growing their share of key cloud service markets, a finding that should not come as a surprise. As with many application and access markets, “winner take all” of the “rule of three” tend to operate, with the consequence that only a few will lead in terms of market share.

Synergy' says 24 “hyperscale” companies in 2016 those companies accounted for 68 percent of the cloud infrastructure services market (IaaS, PaaS, private hosted cloud services) and 59 percent of the SaaS market.

Even that obscures the concentrated nature of leadership. In early 2016, for example, Amazon Web Services alone had about 33 percent share, while AWS plus Microsoft held half the market share. Add Google and IBM and four firms held about 66 percent share.

In 2012 those hyperscale operators accounted for just 47 percent share of each of those markets, says Synergy.

source: Synergy Research

In aggregate those 24 hyperscale operators now have almost 320 large data centers in their networks. The companies with the broadest data center footprint are the leading cloud providers – Amazon, Microsoft and IBM.

Each has 45 or more data center locations with at least two in each of the four regions (North America, APAC, EMEA and Latin America).